Googlephobia

Google’s announcement this week of plans to expand to dozens of more cities got me thinking about the broadband market and some parallels to transportation markets. Taxi cab and broadband companies are seeing business plans undermined with the emergence of nimble Silicon Valley firms–Uber and Google Fiber, respectively.

The incumbent operators in both cases were subject to costly regulatory obligations in the past but in return they were given some protection from competitors. The taxi medallion system and local cable franchise requirements made new entry difficult. Uber and Google have managed to break into the market through popular innovations, the persistence to work with local regulators, and motivated supporters. Now, in both industries, localities are considering forbearing from regulations and welcoming a competitor that poses an economic threat to the existing operators.

Notably, Google Fiber will not be subject to the extensive build-out requirements imposed on cable companies who typically built their networks according to local franchise agreements in the 1970s and 1980s. Google, in contrast, generally does substantial market research to see if there is an adequate uptake rate among households in particular areas. Neighborhoods that have sufficient interest in Google Fiber become Fiberhoods.

Similarly, companies like Uber and Lyft are exempted from many of the regulations governing taxis. Taxi rates are regulated and drivers have little discretion in deciding who to transport, for instance. Uber and Lyft drivers, in contrast, are not price-regulated and can allow rates to rise and fall with demand. Further, Uber and Lyft have a two-way rating system: drivers rate passengers and passengers rate drivers via smartphone apps. This innovation lowers costs and improves safety: the rider who throws up in cars after bar-hopping, who verbally or physically abuses drivers (one Chicago cab driver told me he was held up at gunpoint several times per year), or who is constantly late will eventually have a hard time hailing an Uber or Lyft. The ratings system naturally forces out expensive riders (and ill-tempered drivers).

Interestingly, support and opposition for Uber and Google Fiber cuts across partisan lines (and across households–my wife, after hearing my argument, is not as sanguine about these upstarts). Because these companies upset long-held expectations, express or implied, strong opposition remains. Nevertheless, states and localities should welcome the rapid expansion of both Uber and Google Fiber.

The taxi registration systems and the cable franchise agreements were major regulatory mistakes. Local regulators should reduce regulations for all similarly-situated competitors and resist the temptation to remedy past errors with more distortions. Of course, there is a decades-long debate about when deregulation turns into subsidies, and this conversation applies to Uber and Google Fiber.

That debate is important, but regulators and policymakers should take every chance to roll back the rules of the past–not layer on more mandates in an ill-conceived attempt to “level the playing field.” Transportation and broadband markets are changing for the better with more competition and localities should generally stand aside.

Jack Schinasi discusses his recent working paper, Practicing Privacy Online: Examining Data Protection Regulations Through Google’s Global Expansion published in the Columbia Journal of Transnational Law. Schinasi takes an in-depth look at how online privacy laws differ across the world’s biggest Internet markets — specifically the United States, the European Union and China. Schinasi discusses how we exchange data for services and whether users are aware they’re making this exchange. And, if not, should intermediaries like Google be mandated to make its data tracking more apparent? Or should we better educate Internet users about data sharing and privacy? Schinasi also covers whether privacy laws currently in place in the US and EU are effective, what types of privacy concerns necessitate regulation in these markets, and whether we’ll see China take online privacy more seriously in the future.

This week Google announced that it is grouping 60 of its Web services, such as Gmail, the Google+ social network, YouTube and Google Calendar, under a single privacy policy that would allow the company to share user data between any of those services. These changes will be effective March 1.

Although we have yet to see it play out in practice, this likely means that if you use Google services, the videos you play on YouTube may automatically be posted to your Google+ page. If you’ve logged an appointment in your Google calendar, Google may correlate the appointment time with your current location and local traffic conditions and send you an email advising you that you risk being late.

At the same time, if you’ve called in sick with the intention of going fishing, that visit to the nearby state park might show up your Google+ page, too.

The policy, however, will not include Google’s search engine, Google’s Chrome web browser, Google Wallet or Google Books.

Earlier this year I read Scott Cleland’s new book, Search & Destroy: Why You Can’t Trust Google, Inc., after he was kind enough to send me an advance copy. I didn’t have time to review it at the time and just jotted down a few notes for use later. Because the year is winding down, I figured I should get my thoughts on it out now before I publish my end of year compendium of important tech policy books.

Cleland is President of Precursor LLC and a noted Beltway commentator on information policy issues, especially Net neutrality regulation, which he has vociferously railed against for many years. On a personal note, I’ve known Scott for many years and always enjoyed his analysis and wit, even when I disagree with the thrust of some of it.

And I’m sad to report that I disagree with most of it in Search & Destroy, a book that is nominally about Google but which is really a profoundly skeptical look at the modern information economy as we know it. Indeed, Cleland’s book might have been more appropriately titled, “Second Thoughts about Cyberspace.” In a sense, it represents an outline for an emerging “cyber-conservative” vision that aims to counter both “cyber-progressive” and “cyber-libertarian” schools of thinking.

After years of having Scott’s patented bullet-point mini-manifestos land in my mailbox, I think it’s only appropriate I write this review in the form of a bulleted list! So, here it goes.. Continue reading →

Over a week ago the Washington Post published an interview with Google’s Eric Schmidt to which I’ve been meaning to draw your attention. He’s reflecting on the relationship between Silicon Valle and D.C. days after his Senate testimony, and it’s incredibly candid, perhaps because as the Post noted, “He had just come from the dentist. And had a toothache.” Here are some choice quotes:

On getting told to testify:

So we get hauled in front of the Congress for developing a product that’s free, that serves a billion people. Okay? I mean, I don’t know how to say it any clearer. I mean, it’s fine. It’s their job. But it’s not like we raised prices. We could lower prices from free to…lower than free? You see what I’m saying?

On regulation:

And one of the consequences of regulation is regulation prohibits real innovation, because the regulation essentially defines a path to follow—which by definition has a bias to the current outcome, because it’s a path for the current outcome.

On the D.C. shakedown:

And privately the politicians will say, ‘Look, you need to participate in our system. You need to participate at a personal level, you need to participate at a corporate level.’ We, after some debate, set up a PAC, as other companies have.

On political startups:

Now there are startups in Washington. And these startups have the interesting property that they’re founded by people who were policymakers, let’s say in telecommunications. They’re very clever people, and they’ve figured out a way in regulation to discriminate, to find a new satellite spectrum or a new frequency or whatever. They immediately hired a whole bunch of lobbyists. They raised some money to do that. And they’re trying to innovate through the regulation. So that’s what passes for innovation in Washington.

There’s a real sense of exasperation that is almost absurd–that is, an exhausting attempt to find rationality in political decision making. Of course, there is rational decision making, it’s just on a different margin. Here is Schmidt on expanding H-1B visas:

I’m so tired of this argument. I’m tired of making it. I’ve been making it for twenty years. In the current cast of characters, the Republicans are on our side, our local Democrats support us because our arguments are obvious, and the other Democrats don’t—because they don’t get it. The president understands the argument and would like to support us, he says, but there are various political issues. That’s roughly the situation. That’s been true for twenty years, through different presidents and different leaders. It’s stupid.

No surprise here. The WSJ announced it was coming yesterday, and today Google publicly acknowledged that it has received subpoenas related to the Commission’s investigation. Amit Singhal of Google acknowledged the FTC subpoenas at the Google Public Policy Blog:

At Google, we’ve always focused on putting the user first. We aim to provide relevant answers as quickly as possible—and our product innovation and engineering talent have delivered results that users seem to like, in a world where the competition is only one click away. Still, we recognize that our success has led to greater scrutiny. Yesterday, we received formal notification from the U.S. Federal Trade Commission that it has begun a review of our business. We respect the FTC’s process and will be working with them (as we have with other agencies) over the coming months to answer questions about Google and our services.

It’s still unclear exactly what the FTC’s concerns are, but we’re clear about where we stand. Since the beginning, we have been guided by the idea that, if we focus on the user, all else will follow. No matter what you’re looking for—buying a movie ticket, finding the best burger nearby, or watching a royal wedding—we want to get you the information you want as quickly as possible. Sometimes the best result is a link to another website. Other times it’s a news article, sports score, stock quote, a video or a map.

I have an op-ed up at Main Justice on FTC Chairman Leibowitz’ recent comment in response the a question about the FTC’s investigation of Google that the FTC is looking for a “pure Section Five case.” With Main Justice’s permission, the op-ed is re-printed here:

There’s been a lot of chatter around Washington about federal antitrust regulators’ interest in investigating Google, including stories about an apparent tug of war between agencies. But this interest may be motivated by expanding the agencies’ authority, rather than by any legitimate concern about Google’s behavior.

Last month in an interview with Global Competition Review, FTC Chairman Jon Leibowitz was asked whether the agency was “investigating the online search market” and he made this startling revelation:

“What I can say is that one of the commission’s priorities is to find a pure Section Five case under unfair methods of competition. Everyone acknowledges that Congress gave us much more jurisdiction than just antitrust. And I go back to this because at some point if and when, say, a large technology company acknowledges an investigation by the FTC, we can use both our unfair or deceptive acts or practice authority and our unfair methods of competition authority to investigate the same or similar unfair competitive behavior . . . . ”

“Section Five” refers to Section Five of the Federal Trade Commission Act. Exercising its antitrust authority, the FTC can directly enforce the Clayton Act but can enforce the Sherman Act only via the FTC Act, challenging as “unfair methods of competition” conduct that would otherwise violate the Sherman Act. Following Sherman Act jurisprudence, traditionally the FTC has interpreted Section Five to require demonstrable consumer harm to apply.

But more recently the commission—and especially Commissioners Rosch and Leibowitz—has been pursuing an interpretation of Section Five that would give the agency unprecedented and largely-unchecked authority. In particular, the definition of “unfair” competition wouldn’t be confined to the traditional measures–reduction in output or increase in price–but could expand to, well, just about whatever the agency deems improper. Continue reading →

There is an antitrust debate brewing concerning Google and “search bias,” a term used to describe search engine results that preference the content of the search provider. For example, Google might list Google Maps prominently if one searches “maps” or Microsoft’s Bing might prominently place Microsoft affiliated content or products.

Apparently both antitrust investigations and Congressional hearings are in the works; regulators and commentators appear poised to attempt to impose “search neutrality” through antitrust or other regulatory means to limit or prohibit the ability of search engines (or perhaps just Google) to favor their own content. At least one proposal goes so far as to advocate a new government agency to regulate search. Of course, when I read proposals like this, I wonder where Google’s share of the “search market” will be by the time the new agency is built.

As with the net neutrality debate, I understand some of the push for search neutrality involves an intense push to discard traditional economically-grounded antitrust framework. The logic for this push is simple. The economic literature on vertical restraints and vertical integration provides no support for ex ante regulation arising out of the concern that a vertically integrating firm will harm competition through favoring its own content and discriminating against rivals. Economic theory suggests that such arrangements may be anticompetitive in some instances, but also provides a plethora of pro-competitive explanations. Lafontaine & Slade explain the state of the evidence in their recent survey paper in the Journal of Economic Literature:

We are therefore somewhat surprised at what the weight of the evidence is telling us. It says that, under most circumstances, profit-maximizing vertical-integration decisions are efficient, not just from the firms’ but also from the consumers’ points of view. Although there are isolated studies that contradict this claim, the vast majority support it. Moreover, even in industries that are highly concentrated so that horizontal considerations assume substantial importance, the net effect of vertical integration appears to be positive in many instances. We therefore conclude that, faced with a vertical arrangement, the burden of evidence should be placed on competition authorities to demonstrate that that arrangement is harmful before the practice is attacked. Furthermore, we have found clear evidence that restrictions on vertical integration that are imposed, often by local authorities, on owners of retail networks are usually detrimental to consumers. Given the weight of the evidence, it behooves government agencies to reconsider the validity of such restrictions.

Of course, this does not bless all instances of vertical contracts or integration as pro-competitive. The antitrust approach appropriately eschews ex ante regulation in favor of a fact-specific rule of reason analysis that requires plaintiffs to demonstrate competitive harm in a particular instance. Again, given the strength of the empirical evidence, it is no surprise that advocates of search neutrality, as net neutrality before it, either do not rely on consumer welfare arguments or are willing to sacrifice consumer welfare for other objectives.

I wish to focus on the antitrust arguments for a moment. In an interview with the San Francisco Gate, Harvard’s Ben Edelman sketches out an antitrust claim against Google based upon search bias; and to his credit, Edelman provides some evidence in support of his claim.

I’m not convinced. Edelman’s interpretation of evidence of search bias is detached from antitrust economics. The evidence is all about identifying whether or not there is bias. That, however, is not the relevant antitrust inquiry; instead, the question is whether such vertical arrangements, including preferential treatment of one’s own downstream products, are generally procompetitive or anticompetitive. Examples from other contexts illustrate this point.

In one sense, Siva Vaidhyanathan’s new book, The Googlization of Everything (And Why Should Worry), is exactly what you would expect: an anti-Google screed that predicts a veritable techno-apocalypse will befall us unless we do something to deal with this company that supposedly “rules like Caesar.” (p. xi) Employing the requisite amount of panic-inducing Chicken Little rhetoric apparently required to sell books these days, Vaidhyanathan tells us that “the stakes could not be higher,” (p. 7) because the “corporate lockdown of culture and technology” (p. xii) is imminent.

After lambasting the company in a breathless fury over the opening 15 pages of the book, Vaidhyanathan assures us that “nothing about this means that Google’s rule is as brutal and dictatorial as Caesar’s. Nor does it mean that we should plot an assassination,” he says. Well, that’s a relief! Yet, he continues on to argue that Google is sufficiently dangerous that “we should influence—even regulate—search systems actively and intentionally, and thus take responsibility for how the Web delivers knowledge.” (p. xii) Why should we do that? Basically, Google is just too damn good at what it does. The company has the audacity to give consumers exactly what they want! “Faith in Google is dangerous because it increases our appetite for goods, services, information, amusement, distraction, and efficiency.” (p. 55) That is problematic, Vaidhyanathan says, because “providing immediate gratification draped in a cloak of corporate benevolence is bad faith.” (p. 55) But this begs the question: What limiting principle should be put in place to curb our appetites, and who or what should enforce it? Continue reading →

For my contribution to Berin Szoka and Adam Marcus’ (of TechFreedom fame) awesome Next Digital Decade book, I wrote about search engine “neutrality” and the implicit and explicit claims that search engines are “essential facilities.” (Check out the other essays on this topic by Frank Pasquale, Eric Goldman and James Grimmelmann, linked to here, under Chapter 7).

The scare quotes around neutrality are there because the term is at best a misnomer as applied to search engines and at worst a baseless excuse for more regulation of the Internet. (The quotes around essential facilities are there because it is a term of art, but it is also scary). The essay is an effort to inject some basic economic and legal reasoning into the overly-emotionalized (is that a word?) issue.

So, what is wrong with calls for search neutrality, especially those rooted in the notion of Internet search (or, more accurately, Google, the policy scolds’ bête noir of the day) as an “essential facility,” and necessitating government-mandated access? As others have noted, the basic concept of neutrality in search is, at root, farcical. The idea that a search engine, which offers its users edited access to the most relevant websites based on the search engine’s assessment of the user’s intent, should do so “neutrally” implies that the search engine’s efforts to ensure relevance should be cabined by an almost-limitless range of ancillary concerns. Nevertheless, proponents of this view have begun to adduce increasingly detail-laden and complex arguments in favor of their positions, and the European Commission has even opened a formal investigation into Google’s practices, based largely on various claims that it has systematically denied access to its top search results (in some cases paid results, in others organic results) by competing services, especially vertical search engines. To my knowledge, no one has yet claimed that Google should offer up links to competing general search engines as a remedy for its perceived market foreclosure, but Microsoft’s experience with the “Browser Choice Screen” it has now agreed to offer as a consequence of the European Commission’s successful competition case against the company is not encouraging. These more superficially sophisticated claims are rooted in the notion of Internet search as an “essential facility” – a bottleneck limiting effective competition. These claims, as well as the more fundamental harm-to-competitor claims, are difficult to sustain on any economically-reasonable grounds. To understand this requires some basic understanding of the economics of essential facilities, of Internet search, and of the relevant product markets in which Internet search operates.

The essay goes into much more detail, of course, but the basic point is that Google’s search engine is not, in fact, “essential” in the economically-relevant sense. Rather, Google’s competitors and other detractors have basically built precisely the most problematic sort of antitrust case, where success itself is penalized (in this case, Google is so good at what it does it just isn’t fair to keep it all to itself!). Continue reading →